Executive Briefings

The Inventory Implications of Apparel Omnichannel

Analyst Insight: For online customers, the buy button is easy; everything behind that is complex. Eighty percent of omnichannel strategy is about inventory strategy. It comes down to making intelligent inventory allocation decisions across the network and building an infrastructure flexible enough to quickly realign inventory to meet customers where they want. The key to omnichannel success is offering the customer multiple options and incentivizing the profitable flows. - Jason Denmon, Apparel Industry Leader, Fortna Inc.

The Inventory Implications of Apparel Omnichannel

Customers go online to find products, check inventory and make purchase decisions before they even visit a store to complete the sale. With competitors a click away, the experience has to be seamless, the inventory has to be where you say it is, and the product delivered to the customer when you promise it. There's not a lot of room for error.

While it always starts with the customer, omnichannel isn't the same for every company. You need to respond to customer expectations for your unique business. If your customers want to buy online and pick up in-store, then you offer it. If they want to experience product in the store and have it shipped to home, you offer it. The key is giving the customer options while monitoring which flows they value by what they're actually using. You optimize around those flows that are valued by customers and ensure they are profitable for your business.

How do you do that? There's significant systems work to ensure inventory flows seamlessly and profitably across the network. There are challenges associated with integrating the systems (WMS, WCS, DOM, ERP) required to deliver on your customer promise without sacrificing accuracy, speed, profit, or brand integrity. There's additional transportation optimization required to ensure you meet service requirements without eating into margins. And inventory visibility is critical. Companies face the toughest challenges in achieving complete and accurate inventory visibility across the entire network. This requires store systems that provide real-time updates to an inventory system that also captures the state of the unit (Reserved, Returned, Damaged, Pending Receipt).

You need systems that can handle sourcing rules when inventory is low. You must plan for individual channels (retail, e-commerce, wholesale), but build in flexibility. E-commerce demand is extremely volatile, especially for direct-to-consumer sales. With limited to no visibility into the minds of increasingly fickle consumers, companies struggle to plan accurately for this channel, and therefore, need ways to adjust levels as demand signals change. This involves setting priorities around how deep each channel can go into another’s inventory.

With shared inventory, product sometimes flows across channels in ways that are hard to predict, like when a customer makes a purchase online that’s filled from the DC and returned to the store.  This makes inventory planning more difficult. When you plan your next season, you have to ask “Will demand come from the same place? Did we fulfill from a sub-optimal location because we didn’t have inventory in the right place?”

As omnichannel inventory is allocated, it should be more about satisfying the customer and less about individual P&Ls. KPIs, incentives and reporting must be aligned around omnichannel goals. This requires unprecedented levels of cooperation and coordination of stakeholders from distribution, merchandising, marketing, finance and virtually every function across the business.

The Outlook

It’s just inventory. Your customer doesn’t care whether it came from the DC, the store or direct from the supplier. They don’t care that they saw it online or in the store. They just want it when and where they want it. Omnichannel adds complexity to distribution, but it also offers the opportunity to sell product at the best possible margin. But that requires you to think through the inventory implications of omnichannel in new ways.

Customers go online to find products, check inventory and make purchase decisions before they even visit a store to complete the sale. With competitors a click away, the experience has to be seamless, the inventory has to be where you say it is, and the product delivered to the customer when you promise it. There's not a lot of room for error.

While it always starts with the customer, omnichannel isn't the same for every company. You need to respond to customer expectations for your unique business. If your customers want to buy online and pick up in-store, then you offer it. If they want to experience product in the store and have it shipped to home, you offer it. The key is giving the customer options while monitoring which flows they value by what they're actually using. You optimize around those flows that are valued by customers and ensure they are profitable for your business.

How do you do that? There's significant systems work to ensure inventory flows seamlessly and profitably across the network. There are challenges associated with integrating the systems (WMS, WCS, DOM, ERP) required to deliver on your customer promise without sacrificing accuracy, speed, profit, or brand integrity. There's additional transportation optimization required to ensure you meet service requirements without eating into margins. And inventory visibility is critical. Companies face the toughest challenges in achieving complete and accurate inventory visibility across the entire network. This requires store systems that provide real-time updates to an inventory system that also captures the state of the unit (Reserved, Returned, Damaged, Pending Receipt).

You need systems that can handle sourcing rules when inventory is low. You must plan for individual channels (retail, e-commerce, wholesale), but build in flexibility. E-commerce demand is extremely volatile, especially for direct-to-consumer sales. With limited to no visibility into the minds of increasingly fickle consumers, companies struggle to plan accurately for this channel, and therefore, need ways to adjust levels as demand signals change. This involves setting priorities around how deep each channel can go into another’s inventory.

With shared inventory, product sometimes flows across channels in ways that are hard to predict, like when a customer makes a purchase online that’s filled from the DC and returned to the store.  This makes inventory planning more difficult. When you plan your next season, you have to ask “Will demand come from the same place? Did we fulfill from a sub-optimal location because we didn’t have inventory in the right place?”

As omnichannel inventory is allocated, it should be more about satisfying the customer and less about individual P&Ls. KPIs, incentives and reporting must be aligned around omnichannel goals. This requires unprecedented levels of cooperation and coordination of stakeholders from distribution, merchandising, marketing, finance and virtually every function across the business.

The Outlook

It’s just inventory. Your customer doesn’t care whether it came from the DC, the store or direct from the supplier. They don’t care that they saw it online or in the store. They just want it when and where they want it. Omnichannel adds complexity to distribution, but it also offers the opportunity to sell product at the best possible margin. But that requires you to think through the inventory implications of omnichannel in new ways.

The Inventory Implications of Apparel Omnichannel